The Myth Behind Craigslist: It's Not Maximizing Revenue Potential

from the bull dept

We pointed this out a few years back, but there's this persistent myth behind Craigslist that reporters love to repeat, and it's just not true. The latest is that it shows up in an otherwise excellent profile of Craigslist by Gary Wolf in the latest Wired Magazine. The whole article really is worth reading, though Craig plays up the whole Forrest Gump of the internet schtick a bit more than is fair. However, the article again quotes CEO Jim Buckmaster supposedly brushing off concerns about maximizing revenue:

"Companies looking to maximize revenue need to throw as many revenue-generating opportunities at users as they will tolerate."

But Buckmaster's very next claim belies the fact that he knows the first half isn't really true:

"We have absolutely no interest in doing that, which I think has been instrumental to the success of craigslist."

And, that, really is the point. While it may seem paradoxical, Craigslist actually is being much smarter (on purpose or not) in how it "maximizes profits." It's doing it by not pissing off users and not trying to squeeze them for every possible penny today, knowing correctly that doing so is a horrible long-term strategy. But it's difficult to think of many companies that throw off the sort of profits that Craigslist does on a regular basis. It employs 30 people and most estimates suggest in brings in $100 million in revenue per year. What other companies of that size bring in that much in revenue?

Then look at all the companies that claim they are trying to maximize profits. And compare. I can't see how anyone can take the claim that Craigslist isn't doing that with a straight face. The company knows more about maximizing revenue than probably every celebrity CEO or management consultant out there.

Partner failed doing just that...

In the same article I believe I remember reading how his partner split and tried the charge method and failed within the year trying to maximize billable services for classifieds.

In fairness, the pure simplicity and straight forward application is the best feature of CL. This drives some people nuts as they want the next version to be more polished and so on.

This is something that Microsoft needs to learn with Bing. Great search engine, but the opening screen for it IS WAY TOO HEAVY for a quick search engine. Google's KIS approach to me is far preferable and usually faster.

Actually I think Buckmaster's statement was dead-on accurate. The trick is knowing that a typical user's tolerance is not very high, particularly since a lot of people have a pretty shrewd idea how much it actually costs to run a web-only service like Craigslist compared to a physical media one.

Re:

Someone probably decided to count the number of postings in those categories for a few days/weeks and then extrapolated revenue from there. It may be a lot of postings, but then again those are big cities.

Re:

First, the way you spell your name is not pronounced, in English, the way I think you want it to be...Unless, of course, you're actually GOING for some sort of irony about skepticism and septic systems.... :::shrug:::

Second, "houses in San fran (75$) and jobs in six cities ($25)"...Huh??????? I read that as houses in SF costing $75.00 and six unnamed cities having $25 jobs.....

There is plenty that CL could do that would bring in more income. They are choosing not to maximize their revenue. They could very easily offer some basic ads spots (even just links or ads similar to google ads) on their citynamehere.craigslist.org that would likely bring in significant revenues, without causing any issues for their traffic flow or user base.

Alas, they are making enough money and don't care. At least they won't go down the same stupid road as Starbucks.

workign long term

I think in the end it's a clash of viewpoints. Craigslist is taking the long view and realizing if it does what everybody thinks it should to maximize profits RIGHT NOW that it will shorten it's overall lifespan drastically. They're looking to maximize over the long term, and that's something wall Street just doesn't do much of anymore.

Re: workign long term

The truth is there is plenty of more money CL could make without hurting their future business and without turning their service into a visually blighted banner infested hell.

CL as chosen an extreme "over here" solution that seems good. However, they are leaving the door open for a more nimble competitor to come in, offer the same services, and use income from selected ad spaces to promote their free ad services.

Re: Re:

Re: Re: workign long term

Whatever road yu take there is always the risk that someone will offer a better service and steal your customers, Craigslist is just happily motoring along at the already hugely impressive profit margins it makes.

Why would they change that and risk upsetting this to fight of a possible bid from a more 'nimble' competitor which hasn't even appeared yet?

Mega greed seems to be one of the biggest corporation-killers out there - why does everyone have to subscribe to it?

Re: A Fair Profit

I think CL is quite possibly the best example of the overall idea of what FREE is all about. Here is a company that's been around for over 10 years, provides almost ALL of it's content and services for FREE, and is still able to make over $100 Million, with only 30 employees. It's had large competitors try, in vain, to steal it's market share, (eBay ~16000 employees, Amazon ~20000 employees). And here sits CL with 30 employees and "...more than 47 million unique users every month in the US alone—nearly a fifth of the nation's adult population—it is the most important community site going..."
Please tell me again how this business model doesn't work?

Re: Re: A Fair Profit

What do you suggest an inventor do when a large company takes their invention and the profits from that invention and thumbs their nose at the inventor? This happens all the time.

There is no justice available to an inventor below ten million dollars of infringement; there may be justice between ten and a hundred million. Over a hundred million it is not difficult to get people willing to enforce the inventors' rights.

Then and only then the inventor might see justice. This depends of the court, and some courts actively encourage the thieves and aid and abet their dragging the case out for ten-30 years. The end result being that most inventors go bankrupt.

And that is why inventors flock to Texas. The court does not tolerate delaying tactics.

Wired is all over the place

One minute Craigslist is catastrophically unsophisticated.
Next we're in the middle of the "good enough" revolution.
And all the time the editor in chief advocates "free".

The article seemed to mix up three things
- how CL could make more money
- how CL could look nicer and maybe be a tad more convenient
- how CL could deal with SPAM / posting abuse

Only the third of these actually has true value if you understand the goal of the company.

The market share of CL tells any sane person all they need to know about whether CL is doing it right in the view of the users. But once again the gadget / tech / pretty colours obsessed media cannot quite stomach such an obvious truth.